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A firm that analyzes the quality of company executives said in an Aug. 19 report that it was “concerned” with The Hershey Co.’s choice of the new CFO it hired last March.

The firm, Management CV, based its opinion largely on two factors: the new finance chief, Patricia Little, did not have any food-industry experience, nor did she have enough M&A experience.

While it’s fairly common for finance executives to opine that their skill sets are well transportable across industries, the opposite is actually true (see graph below; click on it to make it larger), says Management CV, which writes analytical reports on the senior executive teams of publicly held companies.

For example, on average, when a CFO hired from outside a company has experience in its industry, shareholder return rises over the next year relative to returns experienced by similar-sized, similar-industry companies, according to Management CV, whose clients are mostly investment-portfolio managers.

But when the finance leader has no experience in his or her new employer’s industry, shareholder return retreats relative to that of the peer group. A 2006 study by Harvard Business School likewise concluded that CEO changes are more successful when the new leader is experienced in the company’s industry.

Management CV classifies Hershey as a “midsized food company.” Before joining it, Little was CFO for seven years at employment agency Kelly Services following a 24-year finance career at Ford Motor, where her final post was global director of internal audit.

“Boards have an ingrained behavioral bias to hire executives from companies they’ve heard of, like Kelly Services and Ford,” says Renny Ponvert, a former private equity investor who is the CEO of Management CV. “Headhunters also like the big, fancy names, because it means they get bigger commissions. But it’s a point of fact that industry knowledge is the biggest telltale for future success.”

In Hershey’s case, Little’s lack of M&A experience is the second half of a double whammy, according to Management CV. Three months after hiring her as CFO, Hershey in June gave Little oversight responsibility for corporate development and M&A.

Last September Hershey acquired 80% of Shanghai Golden Monkey (SGM), a Chinese confectionary company, for $394 million. Hershey’s initial 2015 sales forecast for SGM was $200 million, but its latest forecast was for just $90 million in sales.

CEO J.P. Bilbrey admitted in an Aug. 10 conference call with investors that the results of the acquisition have been “disappointing.” Indeed, Hershey took a $250 million impairment charge related to SGM in the second quarter.

The company was to have purchased the remaining 20% of SGM on the anniversary date of the initial deal, but that’s now been put off, with timing and terms to be redetermined. “We think some issues should have been uncovered during due diligence, with Bilbrey specifically citing [accounts receivable] collections,” Management CV wrote in its report.

It’s Not Easy Being Green

The firm notes that it’s not implying Little was responsible for the acquisition’s poor performance to date, given that the deal was done well before her arrival and SGM’s sales were already tanking when she was given responsibility for M&A. The point, rather, is that M&A may be a troublesome area for the company that would benefit from its finance chief having more of a background in that area.

After Bilbrey was named CEO in 2011, Management CV was encouraged by his talk of focusing on internal operations, says John Delta, the firm’s chief operating officer. “But that hasn’t really happened,” Delta observes. “In our view, he’s focusing on the topline through M&A. And if that’s what you’re going to do, it’s very important to have a CFO who has M&A and integration experience. In this case, if you overlay that with lack of industry experience, it is particularly cautionary.”

In January Hershey announced another acquisition, of Krave Pure Foods — its first foray outside the confectionary market — for $220 million in cash. Management CV’s report noted without further comment that Krave’s annual sales were just $35 million.

Hershey did not respond to a request for comment.

The Management CV executives acknowledge that their analyses essentially point out probabilities, so Little may in fact perform well in her roles. “The possibility exists that [Little is] an outlier and will differ from the statistical samples,” Ponvert says. “But the reality is that she’s likely to conform to them. Our sample is large: hundreds of CFOs over a number of years. Hershey is already struggling on the acquisition front, and she’s got a lot on her plate to learn, and fast.”

Meanwhile, Management CV points out some other red flags regarding Hershey. For one, Bilbrey recently became chairman of the company, on top of his roles as CEO and president. “A triple-titled CEO tends to be indicative of a strong executive/weak board dynamic,” says Delta. “We have a fair amount of empirical evidence that it’s cautionary over time in terms of inferior returns relative to peers.”

Further, the company suffered a blow when Bert Alfonso, who had been CFO for six years before becoming international president in 2013, retired in June. “There does not appear to be a replacement,” Management CV’s report said. Alfonso’s successor in the top finance job, David Tacka, retired at the end of 2014.

Management CV also is concerned with Bilbrey’s compensation, which in fiscal-year 2014 was 58% of the executive team’s total. “Since our previous report, weightings for the cash bonus metrics have become less favorable,” the firm wrote. “They are now based 65% on financial goals and 35% on individual goals that are too subjective. Previously, it was a 75%/25% split.”

The Secret Sauce

Management CV bases its opinions of senior executive teams on three factors. First, it constructs a historical monthly résumé that goes back up to 20 years through the various jobs each senior executive has held. They’re measured against equal-weighted, similar-industry peer groups on metrics like growth in revenue, operating income, and cash flow; revenue per employee; and EBIT (earnings before interest and taxes) per employee.

“We think that statistical résumé tells us how they actually did, as opposed to the glowing bio everybody writes, which often mistakes a good track record with having been at the right company at the right time,” says Ponvert.

Second, Management CV looks at executives’ incentive pay — how much is performance-based versus based on their longevity with the company, how much is long-term incentives versus cash, and whether the metrics driving the plan have sustainable value for outside shareholders. Again, executives are compared against industry peers at like-sized companies (classified as either large, medium, or small).

Finally, the firm goes through what it calls a “fiduciary checklist” of potential conflicts of interest. It looks for a wide variety of things — for example, contractual conflicts of interest, instances of nepotism, leasing an aircraft from a company owned by the CEO — that “other fiduciaries” (for example, money managers) “should know about before buying a company’s stock or bonds.”

Management CV, in business for seven years, has not historically sought out a high profile, although its work has been in IRP Journal, which publishes buy-side research, and Ponvert has been quoted by publications including The Wall Street Journal and Forbes. The firm also has a strategic alliance with CFRA (Center for Financial Research and Analysis).

The company competes to some degree with financial services firms that employ sell-side analysts who prepare reports that are not altogether different from what Management CV produces. It is differentiated, it says, by its independence, as many analysts cover companies that have business relationships with their employers.